Technical report: TRIA - Aviation industry unflapped by uncertainty about TRIA.

(From Reinsurance)

Byline: Eric Alexander.

A number of insurers, particularly those in the USA, have been getting concerned that no extension of the US Terrorism Risk Insurance Act (TRIA) has yet been announced by the US Congress. The 2002 Act created a three-year federal programme to back up insurance companies in dealing with terrorism risks and guarantees that certain terrorist-related claims will be paid. It was devised as a short-term measure designed to give the insurance market time to recover after 9/11 and develop new solutions. The current concern is that TRIA is set to expire in December 2005, even though no longer-term policy has yet been established. In the meantime, insurance policies issued during this year will have uncertainty during their final months as they carry over into 2006.

However, among those apparently least concerned are the airline industry and the aviation insurance market, despite the impression that they could be most affected by terrorist acts. Steve Doyle, manager of the global aviation and aerospace practice of Aon said: "TRIA is not a significant issue in the aviation market. As far as I am aware, there have only been a small number of policies purchased by aerospace companies and none by airlines. Also, the additional premium required by underwriters to include this coverage was substantial."

Nick Brown, chairman of the aviation technical committee of the International Underwriting Association (IUA) of London agreed that TRIA and its possible extension was of little concern in the aviation market. He said: "Very few aviation clients have chosen to purchase TRIA coverage. There are two main reasons for this. First, the US airlines have insurance coverage for war and terrorism risks provided by the US government under the Homeland Security Act. Second, the scope of the coverage provided by TRIA is too narrow to be an effective solution for most aviation companies outside the USA because it is specific to terrorist acts against the US - they therefore prefer to buy the broader coverage offered through traditional aviation hull war policies and AV52 write-backs for liability risks. Given these facts, the extension or otherwise of TRIA beyond 2005 is not a major issue for aviation insurers or their customers."

Waiting for the final Act

Mr Doyle agreed that the impact of the US Homeland Security Act had been more significant than TRIA in the aviation sector but pointed out that this Act also is only currently agreed to be in place until the end of 2005. However, as most of the major airline renewals - especially those from the US - are clustered around the final months of the year, the market can afford to wait a while to see what will happen.